CASE IN FINANCIAL MANAGEMENT

CASE 14 – CASH BUDGET/ CASH FLOW

TEAM MEMBERS:1. NUSAIBAH ROSLAN2. IDARAHAYU AYOB

3. RAYMOND LUCKY SUMARGO

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BACKGROUND OF TRIAD CAMPERS

• Founder - Tim Cook

• Build camping trailers

• Customize and sell trailers from inventory

• Terms of sale 2/10, net 90

• 10% of sales paid within 10 days

• 75% of sales paid after 90 days

• 12% paid within 120 days and 3% uncollectable

• Triad Campers had cash flow problem due to increase in the time dealers took to pay

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INFORMATION

• COGS : 62% of sales

• G& A expense : 8.8%

• Depreciation and interest : Constant

• Tax: 38%

• Purchases: 32%

• Salaries: $4,200

• Wages: 19.6% of sales

• Direct factory: 4.9% of sales

• Administration expense: increase $500 per month

• Selling expenses: 7.8% of sales

• Lease payment July: $19,000

• Tax payment September: $19,800

• Cash balance: $15,000

Schedule of projection receiptJuly Aug Sept

Collection of cashPaid in 10 days 10% July 10% Aug 10% SeptPaid in 90 days 75% April 75% May 75% JunePaid in 120 days 12% March 12% April 12% May

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ANSWERS

TRIAD CAMPERSProfit and Loss Statement

July August SeptemberNet Sales $204,000 $223,000 $240,000Cost of Sales $126,480 $138,260 $148,800Gross Profit $77,520 $84,740 $91,200General Affair Expenses $17,952 $19,624 $21,120Depreciation $14,430 $14,430 $14,430Interest $7,917 $7,917 $7,917Income Before Taxes $37,221 $42,769 $47,733Taxes $14,144 $16,252 $18,139Net Income $23,077 $26,517 $29,594

Question 1

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TRIAD CAMPERSCASH FLOW

July August SeptemberForecasted Sales $204,000 $223,000 $240,000Collections:Paid in 10 days $20,400 $22,300 $24,000Paid in 90 days $111,525 $124,350 $137,700Paid in 120 days $13,471 $17,844 $19,896Total Collections $145,396 $164,494 $181,596

Payments:Purchases $65,280 $71,360 $76,800Salaries $4,200 $4,200 $4,200Wages $39,780 $43,485 $46,800Direct Factory $9,996 $10,927 $11,760Administration Expenses $11,500 $12,000 $12,500Selling Expenses $15,912 $17,394 $18,720Taxes $0 $0 $19,800Equipment Lease $19,000 $0 $0Total Payments $165,668 $159,366 $190,580

Net Cash Flow -$20,272 $5,128 -$8,984Beginning Cash $15,000 -$5,272 -$144Ending Cash -$5,272 -$144 -$9,128Minimum Cash Desired $15,000 $15,000 $15,000Borrowing Needed $20,272 $15,144 $24,128

ANSWERS

Question 2

Tim firm already borrowed $57,000 on its $60,000 line of credit from the bank by the end of June. He will need to increase lines of credit at least 21,000. If the increase is not granted, Tim needs to restrict his growth rates.

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ANSWERS

Question 3

TRIAD CAMPERSProfit and Loss Statement

July August SeptemberNet Sales $244,800 $267,600 $288,000Cost of Sales $151,776 $165,912 $178,560Gross Profit $93,024 $101,688 $109,440General Affair Expenses $21,542 $23,549 $25,344Depreciation $14,430 $14,430 $14,430Interest $7,917 $7,917 $7,917Income Before Taxes $49,135 $55,792 $61,749Taxes $18,671 $21,201 $23,465Net Income $30,463 $34,591 $38,284

As the sale revenue growing, the needs to borrow also growing.

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TRIAD CAMPERSCASH FLOW

July August SeptemberForecasted Sales $244,800 $267,600 $288,000Collections:Paid in 10 days $24,480 $26,760 $28,800Paid in 90 days $111,525 $124,350 $137,700Paid in 120 days $13,471 $17,844 $19,896Total Collections $149,476 $168,954 $186,396

Payments:Purchases $78,336 $85,632 $92,160Salaries $4,200 $4,200 $4,200Wages $47,736 $52,182 $56,160Direct Factory $11,995 $13,112 $14,112Administration Expenses $11,500 $12,000 $12,500Selling Expenses $19,094 $20,873 $22,464Taxes $0 $0 $19,800Equipment Lease $19,000 $0 $0Total Payments $191,862 $187,999 $221,396

Net Cash Flow -$42,386 -$19,045 -$35,000Beginning Cash $15,000 -$27,386 -$46,431Ending Cash -$27,386 -$46,431 -$81,431Minimum Cash Desired $15,000 $15,000 $15,000Borrowing Needed $42,386 $61,431 $96,431 $200,248

ANSWERS

Question 4

TRIAD CAMPERSProfit and Loss Statement

July August SeptemberNet Sales $142,800 $156,100 $168,000Cost of Sales $88,536 $96,782 $104,160Gross Profit $54,264 $59,318 $63,840General Affair Expenses $12,566 $13,737 $14,784Depreciation $14,430 $14,430 $14,430Interest $7,917 $7,917 $7,917Income Before Taxes $19,351 $23,234 $26,709Taxes $7,353 $8,829 $10,149Net Income $11,997 $14,405 $16,560

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TRIAD CAMPERSCASH FLOW

July August SeptemberForecasted Sales $142,800 $156,100 $168,000Collections:Paid in 10 days $14,280 $15,610 $16,800Paid in 90 days $111,525 $124,350 $137,700Paid in 120 days $13,471 $17,844 $19,896Total Collections $139,276 $157,804 $174,396

Payments:Purchases $45,696 $49,952 $53,760Salaries $4,200 $4,200 $4,200Wages $27,846 $30,440 $32,760Direct Factory $6,997 $7,649 $8,232Administration Expenses $11,500 $12,000 $12,500Selling Expenses $11,138 $12,176 $13,104Taxes $0 $0 $19,800Equipment Lease $19,000 $0 $0Total Payments $126,378 $116,416 $144,356

Net Cash Flow $12,898 $41,388 $30,040Beginning Cash $15,000 $27,898 $69,286Ending Cash $27,898 $69,286 $99,326Minimum Cash Desired $15,000 $15,000 $15,000Borrowing Needed -$12,898 -$54,286 -$84,326

ANSWERS

Question 5

We do not find it surprising that only 10 percent of his customers took advantage of the discount and paid within 10 days. From the calculation below, we can see that the cost of giving up the discount was only 9.13%, hardly beneficial to pay early.

Important: Dealers are selling in long term basis to attract customers

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ANSWERSQuestion 6

• Difference between profit and cash flow. How profitable firm can experience cash crunches and have a need for outside capital.

Cash Flow Profit

Money in and out from operations, financing and investing activities

Remains from sales revenue (net income)

Concerned with the time at which the movement of money takes place

Looks at income and expenses at a certain point in time

Indication of company’s strength. Goal is to ensure firm’s solvency, generate positive cash flow and maximize share price

Sales made beyond a breakeven point

Record transaction when money is actually paid or received

Based on accrual concept transactions recorded in the period in which they occur regardless of whether the cash is received or not

• Cash crunch – company needs to prioritize payment and increase collection efforts. Caused by drop in revenue, overcrowded inventory, undercapitalization, allow expenses to drive revenue

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REFERENCE FOR CASH

FLOW & PROFIT

10TRIAD CAMPERSCASH FLOW

July August SeptemberForecasted Sales $204,000 $223,000 $240,000Collections:Paid in 10 days $20,400 $22,300 $24,000Paid in 90 days $111,525 $124,350 $137,700Paid in 120 days $13,471 $17,844 $19,896Total Collections $145,396 $164,494 $181,596

Payments:Purchases $65,280 $71,360 $76,800Salaries $4,200 $4,200 $4,200Wages $39,780 $43,485 $46,800Direct Factory $9,996 $10,927 $11,760Administration Expenses $11,500 $12,000 $12,500Selling Expenses $15,912 $17,394 $18,720Taxes $0 $0 $19,800Equipment Lease $19,000 $0 $0Total Payments $165,668 $159,366 $190,580

Net Cash Flow -$20,272 $5,128 -$8,984Beginning Cash $15,000 -$5,272 -$144Ending Cash -$5,272 -$144 -$9,128Minimum Cash Desired $15,000 $15,000 $15,000Borrowing Needed $20,272 $15,144 $24,128

TRIAD CAMPERSProfit and Loss Statement

July August SeptemberNet Sales $204,000 $223,000 $240,000Cost of Sales $126,480 $138,260 $148,800Gross Profit $77,520 $84,740 $91,200General Affair Expenses $17,952 $19,624 $21,120Depreciation $14,430 $14,430 $14,430Interest $7,917 $7,917 $7,917Income Before Taxes $37,221 $42,769 $47,733Taxes $14,144 $16,252 $18,139Net Income $23,077 $26,517 $29,594

ANSWERSQuestion 7

Cash budget is important financial tool for small firm or large firm?

Cash budget is important financial tool for small firm like Triad Campers rather than large firm.

Larger firms tend to have steady cash flow after a long period of business and financing institutions are more interested with their profitability.

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SCENARIO ANALYSIS

• Change in Desired Cash

• Desired Cash: $ 20,000

Net Cash Flow -$20,272 $5,128 -$8,984Beginning Cash $20,000 -$272 $4,856Ending Cash -$272 $4,856 -$4,128Minimum Cash Desired $20,000 $20,000 $20,000Cummulative borrowing $20,272 $15,144 $24,128 Total $59,545

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SCENARIO ANALYSIS• Desired Cash: $

20,000

• Proportion of sales to avoid cash crunch: 90% of the originalTRIAD CAMPERS

CASH FLOWJuly August September

Forecasted Sales $183,600 $200,700 $216,000Collections:Paid in 10 days $18,360 $20,070 $21,600Paid in 90 days $111,525 $124,350 $137,700Paid in 120 days $13,471 $17,844 $19,896Total Collections $143,356 $162,264 $179,196

Net Cash Flow -$9,216 $17,215 $4,024Beginning Cash $20,000 $10,784 $27,999Ending Cash $10,784 $27,999 $23,975Minimum Cash Desired $20,000 $20,000 $20,000Cummulative borrowing $9,216 -$7,999 -$3,975 Total -$2,758

90% of expected sales

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